Opinion / Budget

Bad Idea: Beginning the Fiscal Year on October 1

Bad Ideas in National Security Series

Late Department of Defense (DoD) budgets have become much more common in recent years.  In the mid-1970s, Congress enacted changes in its budget procedures and delayed the beginning of the fiscal year, in part to reduce the number of late budgets.  Initially, these changes helped though only modestly.  For the first 35 budgets enacted after FY 1977, when the changes took effect, the president and Congress passed nine budgets on time.  Late budgets were only delayed by an average of 56 days after the beginning of each fiscal year on October 1.  But since then, and despite pleas for timeliness from multiple senior DoD leaders, the president and Congress have agreed on only 1 of 10 budgets by October 1, with late budgets taking effect an average of 121 days after October 1. In the author’s view, delaying the start of the fiscal year beyond October 1 offers the best hope of minimizing late DoD budgets.

When DoD budgets are enacted after the beginning of the fiscal year, the president and Congress must agree to a special appropriation bill, known as a continuing resolution (CR). CRs provide temporary funding to avoid partially shutting down DoD due to the absence of an appropriation. Typically, CRs provide appropriations for a short period of time—usually a month or two, but sometimes for only a few days—and set the budget authority in each DoD appropriation at a level equal to an appropriate period in the previous fiscal year. CR provisions, known as anomalies, sometimes provide more or less budget authority for certain programs and occasionally impose special limitations or provide exemptions that permit higher funding.

Even short CRs cause problems for DoD. They add to the workload of comptroller and other staffs because they require special apportionments followed by special distributions of funds, which must be carefully monitored to ensure that they abide by the CR provisions, including any anomalies. CRs usually prohibit the start of any acquisition or construction programs, and even ongoing programs may be delayed because of uncertainty about future funding. As a result of these delays, contracting professionals have less time to do their jobs, which can result in contracts that are less well crafted. Because typical CRs set funding levels for each appropriation at the previous year’s levels, they can leave dollars in the wrong appropriations—for example, a planned increase in procurement might not be supported by a CR that sets procurement funding at last year’s level. Worse yet, Congress usually does not allow DoD to reprogram funds while under a CR because the department lacks an enacted budget with the details necessary to assess reprogramming actions. For all these reasons, and because of uncertainty about what funding will ultimately be made available, late appropriations and their accompanying CRs reduce the DoD’s budgetary effectiveness.

While all CRs present challenges, lengthy ones pose significantly greater problems. Over the years, DoD has learned to minimize the number of major contract renewals or large financial transactions during the first quarter of each fiscal year as CRs have become the norm. Stated whimsically, DoD knows how to hold its fiscal breath for a few months at the beginning of each fiscal year. But CRs that extend beyond December 31 have become increasingly common in recent years. For the 10 most recent enacted budgets, the president and Congress have failed to agree on a budget by December 31 in four years, with delays averaging 169 days, or until about mid-March. Exceptionally long CRs that leave money in the wrong appropriations can cause serious execution problems. Long CRs also leave little time for creating good contracts and are especially problematic for the operating accounts, which contain funds that must be completely obligated in the fiscal year of their appropriation. The lack of reprogramming authority and general budgetary uncertainty can seriously harm programs. In short, late budgets and the resulting CRs are a bad way to finance DoD activities, and long CRs are especially harmful.

If the president and Congress want to enact more budgets on time, the fiscal year should begin later. The December holiday recess tends to be an action-forcing event for Congress; delaying the end of the fiscal year would take advantage of this behavioral pattern. Further, a new Congress begins every other year soon after December 31. This tends to spur congressional action prior to December 31 because all legislation not enacted during the previous Congress must be reintroduced during the new one. 

DoD needs to work with the president and Congress to choose an end for the fiscal year that not only promotes on-time budgets, but also recognizes the demands placed on financial managers, among other stakeholders. These goals sometimes conflict. For example, ending the fiscal year on December 31 seems logical because the fiscal and calendar years would then coincide. However, December 31 is not a good choice because DoD would have to conduct its final review of the current fiscal year (known as “close out”) during the December holidays and simultaneously finalize the budget for the next fiscal year. The strain on DoD’s financial managers and other stakeholders would be unacceptable. One possibility: end the fiscal year on December 15 and move the date for submission of the next budget to mid-April. That should resolve some of the workload issues while leaving Congress at least the same amount of time to review the budget for the next year and providing more time for oversight. Had the fiscal year ended on December 15th in the years following FY 1977, and if enactment dates had remained unchanged, then both the number of late budgets and the average delay would have been reduced by about half.  Only a handful of budgets would have been late by more than one month. This change would, of course, need to apply to all federal agencies, not just DoD.

Late budgets are by no means the only issues facing DoD financial managers; but they constitute an important problem and, despite frequent pleas from DoD leaders citing the disadvantages noted above, the problem is getting worse not better. In the author’s view, delaying the beginning of the fiscal year, if done carefully, represents the solution most likely to reduce the number and length of late DoD budgets.

(Photo Credit: Architect of the Capitol)

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